Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

In countries with growing populations, rising incomes and falling real interest rates, property is usually a winning bet.

Strike Japan out on two of three of those counts. Its population is both aging and shrinking. The 1.9 percent rebound in the first quarter aside, the economy is hardly booming. But thanks to massive money printing, real interest rates are negative. And chiefly as a result of that, Japanese real estate has been the biggest source of returns for Asian property investors for at least two years.

Japanese property funds' return last year

21.5%

Japanese property funds returned 21.5 percent last year and 20.7 percent in 2014, making them the best performers among Asian real-estate funds, according to data from the Asian Association for Investors in Non-listed Real Estate Vehicles. Chinese property funds, by contrast, had negative returns last year, while all funds tracked by ANREV gave average returns of 11.7 percent.

Rising Sun

Returns from non-listed Japanese real estate funds have been increasing since 2013

Source: ANREV

Can the boom continue?

The bullish scenario envisions property becoming a magnet for money fleeing pricey Japanese government bonds. Then there's the surge in visitors from China, which is good for both business and commercial real estate. Add the buzz and infrastructure spending expected ahead of the 2020 Tokyo Olympics, plus a cheap yen making Japan more affordable to tourists, and there's a strong case for optimism about hotels and malls.

While it's certainly not back to the go-go 1980s, when the grounds of Tokyo's Imperial Palace were worth more than all the real estate in California, Japanese land prices rose for the first time in eight years in 2015. A store selling musical instruments and CDs in Tokyo's posh Ginza shopping district sits atop land worth $358,000 a square meter, the nation's most expensive, according to government data released in March.

Even with unfavorable demographics increasing the number of empty homes, residential real estate is now almost too cheap to ignore, as Gadfly columnist David Fickling notes. A borrower can get a 35-year loan for just 1.25 percent, well below the capitalization rate, or the annual return of income-producing properties.

Commercial real estate, meanwhile, is buoyant. Office vacancy rates were 4 percent in March, the lowest since August 2008, according to Jefferies analyst Chang Han Joo. With negative interest rates now a part of life, a punt on domestic real estate through liquid REITs could do well, Jefferies noted in a recent report.

Japanese REITs boast an average dividend yield of 3.3 percent, according to data compiled by Bloomberg, versus minus 0.115 percent for 10-year government bonds. Rents provide stable cash flows, and Japanese REITs also have tax advantages, not to mention 100 percent payout ratios.

Inching Ahead

Japan's office and industrial REITs have started to outperform other developed Asian markets

International buyers have been flocking to Japanese real estate for a few years now, drawn by the cheap prices as well as Prime Minister Shinzo Abe's pledge to end deflation. Chinese sovereign wealth fund CIC bought a $1.2 billion office and commercial complex in Tokyo in February last year while in May 2014, Shanghai-based Fosun acquired Japanese real-estate management firm IDERA Capital Management.

More recently, much of the activity has centered on REIT consolidation, which has worked to improve liquidity and may help them get included in major stock benchmarks. Nomura's Real Estate Master Fund, the country's biggest REIT, bought Top REIT via a unit swap in a $1.5 billion deal last month, for example.

The challenge, however, will be sustaining those reliable cash flows. Japan's currency has risen 14 percent against the yuan this year, prompting some analysts to predict a slowdown in Chinese tourist arrivals.

More importantly, it's unclear whether Abe's economic campaign will endure. Bank of Tokyo-Mitsubishi UFJ, Japan's biggest lender, hasn't exactly given a vote of confidence in the country's negative interest-rate policy by toying with the idea of giving up its primary dealer privileges.

If Japan dials down its unconventional monetary stance, and real interest rates rise back to the 3-percent-plus levels of 2010 and 2011, Tokyo's chrome-and-glass office towers could lose their glitter, and quickly.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.